Introduction
The choice between working directly with a factory or through a trading company is not a moral question. Both can produce good results, and both have failed for buyers who chose the wrong one for their situation.
This article covers when each is the right choice, and how to tell them apart in practice.
What A Factory Is
A factory manufactures the product in-house. When you place an order, the factory allocates raw materials, production time, and labour on its own floor. Communication goes directly to the production team.
What A Trading Company Is
A trading company does not manufacture. It sources from one or more factories, adds a service margin, and manages the buyer relationship. Some trading companies are excellent — they consolidate small orders across categories, handle communication, and manage quality on behalf of buyers.
When A Factory Is The Right Choice
- Single-product order, larger volume
- Custom manufacturing requiring direct technical conversation
- Ongoing relationship where unit cost matters
- You are willing to do more of the coordination work yourself
When A Trading Company Is The Right Choice
- Multiple products across categories in one shipment
- Smaller order volume than typical factory MOQ
- You need one relationship rather than five
- You value the trading company’s quality-management role
How To Tell Them Apart
Ask direct questions:
- “Can I visit your production floor?”
- “What is your primary product category?” (factories specialise; traders diversify)
- “How many workers do you employ?” (factories give a specific number)
- “Where are your raw materials sourced?”
Vague or evasive answers usually indicate a trading company presenting as a factory.
The Hidden Middle: Factories With Trading Arms
Some suppliers are technically factories but source components or subcategories from other factories. This is neither good nor bad, but it is worth knowing.
Ask: for this specific product, will you manufacture it in-house?
FAQ
Do trading companies mark up prices heavily? Margins vary. Some trading companies work on 5–8% markups; others charge more. The markup is worth it if the trading company adds real coordination value.
Can a trading company become as good as a factory relationship? For the right buyer profile, yes. A trading company that consolidates multiple products across categories is often more valuable than five direct factory relationships.
How do I know if a supplier is really a factory? A live video walkthrough of the production floor answers the question in five minutes.
Match The Supplier Type To Your Order Profile
There is no universal right answer. If you would like Hansen to identify the supplier type that fits your order, start a project.